Costs decision cuts deep

Following the successful appeal in medical negligence proceedings, a surgeon (Dr Gray) filed a notice of motion to vary the Court of Appeal’s costs orders. Mr Hobson, the plaintiff and respondent to the appeal, made his own application on costs.

Following a mediation, Dr Gray had served an offer of compromise dated 1 November 2016 which was open for acceptance until 9 am on 3 November 2016. The trial was listed to commence on 7 November 2016. On 2 November 2016 Mr Hobson served his own offer of compromise. On appeal, Dr Gray achieved an outcome that was more favourable than the offer he had made to compromise the proceedings at first instance.

Dr Gray’s notice of motion sought costs incurred to 1 November 2016 be payable on the ordinary basis and for indemnity costs thereafter. Mr Hobson argued that the offer of compromise was not open for acceptance for a reasonable time period having regard to the circumstances. The court rejected Mr Hobson’s position noting that a mediation had occurred on the day of Dr Gray’s offer and the trial was listed to commence shortly thereafter. Further, in the intervening period Mr Hobson had served his own offer and on that basis had sufficient information available to him to properly consider Dr Gray’s offer. Dr Gray was awarded indemnity costs from 1 November 2016 for the costs of the trial proceedings. The Court declined to award Dr Gray indemnity costs for the appeal proceedings as the offer of compromise made in the primary proceedings was spent and no further offer was made. The Court noted that there was arguably a reasonable basis to order the costs of appeal on an indemnity basis but in the circumstances awarded the appeal costs of the appeal on an ordinary basis.

The Court also refused to vary the statutory regime for interest on costs and declined to make orders requiring part of Mr Hobson’s judgment amount to be held in trust. The Court noted that this was, in essence, a Mareva type order and outside the scope of the proceedings.

The Court also rejected Mr Hobson’s application for an order than only 75% of Dr Gray’s costs be payable. The reasoning put forward by Mr Hobson, that the quantum aspect of Dr Gray’s appeal was unsuccessful, did not properly consider Dr Gray’s completely successful liability determination.

Whats next?

Upheld on appeal, Dr Sparks was ordered to pay Mr Hobson $3,828,075 in damages arising from Dr Sparks’ negligence. It seems likely Dr Gray’s legal team will make an application for part of the judgment to be held in trust on account of Dr Gray’s legal costs totalling $938,711.

This costs decision emphasises the benefits (and risks) associated with offers of compromise. It also serves a timely reminder that for indemnity costs applications to be successful in appeal proceedings, an offer to compromise is either required to be made in the appeal or a previous offer renewed. Should no offer be made in the appeal proceedings it is likely that successful appellants will be restricted to orders for costs on an ordinary basis.

Our assessment of the proceedings at first instance and on appeal can be viewed here and here.


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